Payment processors or credit card processor are companies that are given the mandate of handling transactions using channels like debit and credit cards. Business people usually mandate them. They are either back end or front end processors. The difference between the two is that front-end processors are connected to card issuance companies and have authorization to the banks of the business people. On the other hand, the back-end processors accept money transfer from the front-end processors and have the rights to move the money from the issuing bank to the businessperson’s bank under their instruction. These operations usually take minimal time. The payment processor will have to check the details of the issuing bank for verification.
How payment processors work
The parties involved in payment processors are the cardholder, the business owner, the acquiring and issuing banks, and card affiliations
A cardholder is an individual who obtains a card, which may be a debit card or a credit card from a bank. The role of the cardholder is to present the card to the merchant at the point of payment. The payment is usually for goods and services offered.
The merchant refers to any business that is involved in the rendering of goods and services to the cardholder. Only specific merchants allow the use of cards to facilitate payment. A merchant, therefore, maintains a merchant account that allows them to accept payments using credit and debit cards for goods and services offered.
The acquiring bank is the merchants’ bank where the merchant has an account. The accounts are designed to accept both debit and credit cards. Acquiring banks usually provide the merchants with devices that are used to accept the cards. The cards are usually connected to the merchants’ bank accounts.
The issuing bank is the cardholder’s bank. The bank usually is a member of the card associations. The issuing banks issue the cardholder with the card.
Whenever a cardholder makes a purchase, the issuing bank makes a payment to the acquiring banks.
The cards associations act as custodians and facilitate the clearing process. They are the visa and the MasterCard. They are public companies. They do not issue any cards but the issuing cards with their permission do this. The card associations govern the community of financial institutions. The main role of card associations is to govern the banks that are the members of their association. They facilitate the transfer fees and provides banks with the qualification guidelines. The card associations also work as intermediaries between the acquiring and the issuing banks. They also help in the maintenance of the card network. They earn profits from their roles.
The Process of Authorization and Payment
The cardholder presents the card to the merchant. The cardholder is, therefore, the initiator of the payment process. The merchant uses the card through a device to transfer the details of the transaction to the acquiring
bank after they put in their pin numbers. The acquiring bank transmits it to
the appropriate card network. The information is routed between the involved banks and the transaction is either approved or declined depending on whether the cardholder had enough balance. The card association then sends a response code to the merchants’ terminal that is stored for batching. These processes usually take seconds.